Bills Digest No. 54  1998-99 Telstra (Transition to Full Private Ownership) Bill 1998


Numerical Index | Alphabetical Index

WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer and Copyright Details

Passage History

Telstra (Transition to Full Private Ownership) Bill 1998

Date Introduced: 12 November 1998

House: House of Representatives

Portfolio: Communications, Information Technology and the Arts

Commencement: Except Schedule 3, the Act commences on Royal Assent. The commencement of Schedule 3 is discussed below.

Purpose

To:

  • facilitate the sale, by the Commonwealth, of shares in Telstra Corporation Limited (Telstra) so that the Commonwealth retains 50.1% of the total number of shares
  • set out the distribution of the Government's 'social bonus', which is to be funded by the sale
  • make provision for the establishment of an independent inquiry into Telstra's service performance before the Commonwealth divests itself of more than 49.9% of Telstra shares.

Background

This Bill is one of a package of five Bills.(1) The Background to this Bill is contained in the Bills Digest for the Telecommunications (Consumer Protection and Service Standards) Bill 1998.

Main Provisions

The Bill is comprised of three amending Schedules.

Schedule 1 - General Amendments

Item 5 inserts proposed new section 8BUA into the Telstra Corporation Act 1991. That section requires that Telstra must ensure that at least 2 of its directors have knowledge of, or experience in, the communications needs of regional areas.

This policy decision was announced by the Minister for Communications, the Information Economy and the Arts on 22 July 1998, at least partly as a response to concerns that a fully privatised Telstra may not meet the needs of regional and rural subscribers.(2)

Schedule 2 - Amendments relating to the sale by the Commonwealth of 49.9% of its original equity interest in Telstra

Item 3 inserts proposed new section 22A into the Natural Heritage Trust of Australia Act 1997. That section will provide for the transfer of another $250 million from the sale of the remainder of Telstra to the Nature Heritage Trust of Australia Reserve.

Item 19 inserts new section 8AUA into the Telstra Corporation Act 1991. That section will allow the Minister to amend Telstra's constitution (i.e. its memorandum and articles of association) at any time between the commencement of the section and the day on which the Commonwealth's shareholding in Telstra falls below fifty per cent. The amendment must relate to the sale of Telstra and the effect of the alteration must be to remove the requirement that a particular act or thing be done only with the consent of the Minister.

Items 27 to 34 deal with the foreign ownership restrictions. The amendments are of a technical nature and do not change the existing foreign ownership limits, i.e. total foreign ownership must not exceed 35 per cent and no foreign individual may own more than five per cent.

Item 42 creates new section 8CCA which is an anti-avoidance provision. The section will prohibit Telstra from entering into a scheme for the purpose of avoiding the application of any of the provisions of the Telstra Corporation Act 1991. The Explanatory Memorandum to the Bill cites examples of the types of provisions which could be the subject of avoidance through the use of a scheme as, the foreign ownership restrictions and requirement that Telstra base its operations in Australia.

Part 2C of the Telstra Corporation Act 1991 was inserted by the Telstra (Dilution of Public Ownership) Act 1996 immediately prior to the sale of the first third of the company. Part 2C is headed 'Re-affirmation of Universal Service Obligation' and contains a restatement of the core elements of the USO. Its insertion was intended to:

re-affirm that the transfer of part of the Commonwealth's equity in Telstra will not affect the 'Universal Service Obligations' that apply to Telstra and other telecommunications carriers.(3)

The USO at that time was contained in the Telecommunications Act 1991 and is now contained in the Telecommunications Act 1997, as mentioned above. Consequently the re-affirmation served no legal purpose but instead was intended to allay concerns about Telstra's performance of its community service obligations following its partial privatisation.

Item 45 repeals Part 2C.

The Social Bonus

Item 52 inserts proposed new Part 9 into the Telstra Corporation Act 1991. Part 9 will be headed 'Social bonus resulting from the partial sale of Telstra'.

The social bonus is an amount of $421 million which has been allocated to spending on improving telecommunications services in rural and remote areas. The components of the social bonus are:

  • $70 million over 5 years will be expended from the Rural Transaction Centres Reserve. The purpose of the expenditure will be to enable people in rural areas to have access to services and technology that enable them to obtain information or carry out business (proposed new section 48).

Examples of the types of services envisaged are: phone, fax, postal, data transmission and internet services. Examples of the types of transactions are: commercial, banking and insurance transaction and dealings about employment matters and with governments.

  • $150 million over 3 years will be expended from the Untimed Local Call Access Reserve. The purpose of the expenditure will be to enable carriage service providers to provide people who are do not currently have access to untimed local calls with access or provide people who have only limited access to untimed local calls with extended access (proposed new section 54).
  • An addition to the Regional Telecommunications Infrastructure Fund (RTIF) of $81 million. The RTIF was established in early 1997 with a independent board which was allocated $250 million to spend on regional communications needs over 5 years.

A further $81 million is allocated to the RTIF by this bill, to be spent on:

  • $20 million to assist in meeting the telecommunications needs of people in remote island communities, isolated island communities or the Australian Antarctic Territory
  • $36 million to facilitate the provision of internet access for people in rural or regional areas, being access at a reasonable cost and involving a reasonable bandwidth
  • $25 million to facilitate mobile phone coverage along highways
  • $120 million over 5 years will be expended from the Television Fund Reserve. The purpose of the expenditure will be to extend areas in which television programs broadcast by SBS can be received and enabling people to obtain reception of programs transmitted by SBS, the ABC or the commercial television stations.

Schedule 3 - Amendments relating to the sale by the Commonwealth of more than 50% of its original equity interest in Telstra

Item 2 of Schedule 3 permits the Minister for Communications, Information Technology and the Arts to establish an inquiry into whether Telstra has met 'prescribed criteria' relating to its operational performance for a particular 'designated period'. If the inquiry is satisfied that Telstra has met the prescribed criteria in respect of the designated period, it must issue a certificate to that effect to the Minister. Upon the issue of a certificate, the provisions of the Bill which facilitate the sale of the remaining 50.1% of the shares in Telstra commence.

The designated period is the period during which Telstra's performance will be assessed and must be at least 6 months.

The prescribed criteria are not set out in the Bill, but are to be specified in regulations.

Certain persons and bodies are ineligible to conduct the inquiry. Those persons include Telstra or an employee of Telstra and employees of the Commonwealth and Commonwealth authorities.

Schedule 3 also makes the usual provision for preservation of long service leave entitlements.

Part 4 of Schedule 3 commences on a day fixed by proclamation. However, a proclamation cannot be made until the Commonwealth owns less than 50% of the shares of Telstra. Item 28 of Schedule 3 (which is in Part 4) repeals the Minister's power to direct Telstra, which is presently contained in section 9 of the Telstra Corporation Act 1991.

Concluding Comments

At least four issues arise in relation to the proposed inquiry into Telstra's performance:

  • probably the most critical element of the inquiry is the nature of the criteria which Telstra's performance must satisfy - why is the specification of that criteria deferred to regulations?
  • the designated period can be as short as 6 months - from a statistical perspective, is that period sufficiently long to allow an accurate assessment of performance?
  • what would stop Telstra being on its 'best behaviour' during the assessment period, perhaps by increasing the allocation of resources to certain areas of the organisation during that time?
  • To what extent are any measures or assessments of Telstra's performance as a joint private/public sector corporation relevant to its prospective performance as a wholly private sector corporation?

Endnotes

1. Telstra (Transition to Full Private Ownership) Bill 1998

Telecommunications Legislation Amendment Bill 1998

Telecommunications (Universal Service Levy) Amendment Bill 1998

Telecommunications (Consumer Protection and Service Standards) Bill 1998

NRS Levy Imposition Amendment Bill 1998

2. Minister for Communications, the Information Economy and the Arts (Senator the Hon Richard Alston) and Minister for Finance and Administration (the Hon John Fahey MP), 'The Sale of Telstra', 22 July 1998.

3. Australia, Parliament, Telstra (Dilution of Public Ownership) Bill Explanatory Memorandum, 1996, 3.

Contact Officer and Copyright Details

Lee Jones
2 December 1998
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

IRS staff are available to discuss the paper's contents with Senators and Members
and their staff but not with members of the public.

ISSN 1328-8091
© Commonwealth of Australia 1998

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1998.

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